After months of painful public discussions around the future of London as a listing venue, the Capital Markets Industry Taskforce has finally set out to develop a coherent strategy to prevent the UK from fading into insignificance. This time, hopefully, it means business.
The debate seemed hysterical at times, with a tendency to exaggerate the decision of a few Irish companies to move their UK listings to the US, where they generate most of their revenues, and to ignore the fact that last year was an awful time for IPOs everywhere, not just in London. In fact, listing volumes in the US were 93% lower in 2022 than in 2021, according to Dealogic data. However, the intense coverage has helped draw attention to the real, if more nuanced problems of the UK market.
London remains Europe’s largest IPO location, but the growth rate of IPO numbers and capital raised has been stronger on the continent between 2017 and 2021, according to a UK Finance paperpublished on Tuesday.
The report also found that 67% of UK-funded tech companies, but only 54% of its healthcare start-ups choose to list in their home market in 2021. In both sectors, 32% of the businesses opted for a US IPO.
Once listed, UK equities are less liquid than their US counterpart. In January 2023, Nasqaq had a trading volume of $1.7tn, equivalent to 9.4% of its market capitalisation, according to data by the World Federation of Exchanges. On the London Stock Exchange, $82.6bn of equities, or 2.5% of its market capitalisation, were traded in the same month.
Since 2020, the UK government has launched a number of reports on the UK capital markets — including Jonathan Hill’s UK Listings, Mark Austin’s Secondary Capital Raising and the Kalifa reviews.
Market participants generally agree that these reviews are welcome, and since no public money was spent on them — Hill, Austin and Kalifa all conducted their investigations on a voluntary basis, according to the government’s response to GlobalCapital’s Freedom of Information request — there can be no complaints about the cost of progress.
Each review has led to some sensible changes, but none have moved the needle when it comes to altering London’s competitiveness as a listing venue.
The reality is that most reforms since 2020 have been a response to a specific event rather than a coherent strategy for the future of UK capital markets. The UK is missing out on the boom of special purpose acquisition vehicles? Let’s relax the rules on dual class share structures. Companies used the right to raise up to 20% of their share capital without pre-emptive rights responsibly during the pandemic? Let them keep it.
So in its new report on the “UK Capital Markets of Tomorrow”, the Capital Markets Industry Taskforce is finally attemptingto tackle the biggest question of all: what is wrong with London — and how can we fix it?
The report explicitly aims to span regulation as well as market practice and cultural and mindset factors. It is a chance to develop what one lawyer referred to as the “root and branch” view on the struggles of the UK listing market. The challenge will be to elevate it beyond a mere executive summary of what has happened so far.
There are some promising signs. The taskforce plans to publish the report ahead of the autumn statement of the chancellor of the exchequer, which usually comes in November. Maintaining the status as financial capital of Europe is central enough to the UK economy and identity to get regulators, politicians and market practitioners to agree that something must be done, and quickly.
Unlike in previous reviews, CMIT has not launched a general market consultation. Instead, the announcement of the report says "invited senior market participants" will come together at a conference on July 7 to share their views on the matter.
Julia Hogget, chief executive of the London Stock Exchange and chair of the taskforce, is aware that “there is no silver bullet” to save UK capital markets. She and her fellow CMIT members already know what they want to do in vague terms: reform corporate governance, foster a more active retail investor culture, tap pools of institutional money that are underrepresented in UK equities, all in the mission to create a more welcoming environment for growth companies.
To be a success, this report must define a coherent vision that allows the involved parties to derive concrete plans on how to achieve each of these missions.
After three years of tinkering with the small print, London needs exactly one final review — the one that leads to action. Hopefully it makes a difference this time.